Be Wary of Anticompetitive Settlement ProvisionsPublications | August 25, 2016
The Federal Trade Commission (FTC) has brought an administrative proceeding against 1-800-Contacts. 1-800-Contacts was an early internet mail order contact lens distributor and remains the dominant (50%+ market share) competitor in the online/mail order disposable contact lens market. The FTC alleges that 1-800-Contacts “unlawfully orchestrated and now maintains a web of anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions and that restrict truthful and non-misleading internet advertising to consumers, resulting in some consumers paying higher retail prices for contact lenses.”
The “web” of agreements at issue in the FTC’s action relate to claims that the contact lens giant has been asserting for more than 10 years against competitors that it alleges violated 1-800-Contacts’ intellectual property rights by contracting with Google and other online search engines to have their advertisements appear (in the advertising block, not in the general search results) in response to keyword searches for “1-800-Contacts.” As part of settlement agreements with numerous of these competitors, both the competitor and 1-800-Contacts agreed not to bid on contracts with online search engines to have their advertisements appear in response to a keyword search for their respective competitor and, in most cases, also agreed to affirmatively enter into contracts to block their own advertisements from appearing in response to a search for a competitor’s name (known as negative keyword agreements).
It is worth noting that the 10th Circuit Court of Appeals affirmed the summary judgment victory of a non-settling 1-800-Contacts’ competitor on a Lanham Act claim brought by 1-800-Contacts in the U.S. District Court in Utah, finding that the use of a competitor’s name as a keyword did not lead to consumer confusion, and thus could not constitute trademark infringement. 1‐800 Contacts, Inc. v. Lens.com, 722 F.3d 1229 (10th Cir. 2013). (There is also a separate antitrust class action currently against 1‐800-Contacts and others based on retail price maintenance that has survived a motion to dismiss earlier this year. See In re Disposable Contact Lens Antitrust Litig., MDL No. 3:15-md-2626-J-20JRK (M.D. Fla.).)
Consistent with the 10th Circuit, the FTC alleges the 1-800-Contacts settlement agreements restricting the use of competitors’ names as keywords in internet searches “go well beyond prohibiting trademark infringing conduct [and] restrain a broad range of truthful, non-misleading, and non-confusing advertising.” The FTC complaint alleges restraint of competition and unfair methods of competition in violation of Section 5 of the FTC Act, 15 U.S.C. § 45, and seeks permanent injunctive relief. (FTC Docket No. 9372, Aug. 8, 2016, available at https://www.ftc.gov/system/files/documents/cases/160808_1800contactspt3cmpt.pdf)
A key takeaway from the FTC’s recent action is that, even if made to enforce alleged intellectual property rights, agreements among competitors that impact competition are subject to antitrust scrutiny, and can result in damage claims and enforcement actions.
For more information on this or other antitrust matters, pitfalls and considerations, please contact your Kutak Rock attorney or the author of this alert. Mr. Jaffe has longstanding experience in antitrust matters, including analyzing transactions and settlement and other agreements to determine if they present substantive antitrust issues.